Two-ounce bottles of natural lavender body oil moved along the line at the Watkins Inc. manufacturing plant in Winona, Minn. Watkins has been manufacturing on the same block in Winona since 1885, back when founder J.R. Watkins rode around in his horse-drawn buggy.

Glen Stubbe, Star Tribune

President Mark Jacobs says the 140-year-old company has thrived even in tough times because “people are looking for comfort.”

Glen Stubbe, Star Tribune

Small business: Tiny bottles fuel Watkins' growth

Article by: TODD NELSON

Special to the Star Tribune

March 1, 2009 - 9:51 PM

Winona's 140-year-old Watkins Inc. is stirring up a healthy batch of growth with a newfangled mix of natural and organic products and expanding distribution at Target and other major retailers.

The natural and organic push harkens back to the home-remedy days of founder J.R. Watkins, who launched the company in 1868 by mixing evergreen and red pepper extracts to create his Original Liniment, still for sale today.

The mass retail strategy, however, might be less familiar to the original Watkins, who once sold his wares door-to-door from a horse-drawn buggy. The company later turned to traveling salesmen before building one of the country's biggest direct-selling networks.

Some direct-selling associates, now numbering 25,000, worried that the company's retail push, which began in 2004 at Wal-Mart and has since spread to Target, Walgreen's, Whole Foods and others, might lead to the demise of their calling.

The goal of going retail was to reach more consumers, raise brand awareness and in turn boost direct sales, Watkins President Mark Jacobs said. And that's largely what the initiative has done and is expected to continue to do, Jacobs said.

Together, increasing retail sales, last year's new lines of natural home and personal care products and strong direct sales have proven to be a growth tonic of sorts. The combination is driving the best results the company has seen in the past two decades, according to J.R. Rigley, vice president of sales and marketing.

Sales at the privately held company have grown from $70 million in 2005 to $95 million last year, said Jacobs, who was brought in to turn the company around by his father, businessman Irwin Jacobs, who bought Watkins in 1978. Mark Jacobs said he expects the company to hit $110 million in sales this year, on its way to $500 million in five years.

A key to the company's growth, even as the economic slowdown deepens, is the pricing and positioning of Watkins as an affordable comfort brand. Most products -- including the new J.R. Watkins Natural Apothecary and Natural Home Care lines and the company's organic herbs and spices and natural vanilla and other extracts -- cost less than $10.

Small comforts sell

The natural apothecary line launched exclusively last year at 40 Target stores, Jacobs said, is now heading to 500 of Target's stores and moving to shelves in other retail stores.

"Even though retailers are struggling, what they're finding is that consumers are trading down in price, and that's where we really shine," Jacobs said. "Because we can offer a premium product experience at a very competitive price. During the Great Depression, Watkins was booming. We've been through wars and depressions and we've always thrived during them because people are looking for comfort."

"We have seen our business increase 15 to 20 percent strictly from people running into things in Target, Wal-Mart or some other retailer here or there," said Birch, who has sold Watkins products along with his wife, Barbara, since 1994. "They'll call Watkins and say, 'Where's somebody in my neighborhood to buy from?' They're getting their interest generated in the retail, which is precisely how the plan is supposed to work."

Before approaching mass retailers, Watkins tested some of its personal care products at higher prices in high-end spas and boutique shops.

"When you see our packaging and the quality of our ingredients, they could easily be $50 if we wanted to go that route," Jacobs said. "We did sell some of them that way initially. Then we realized we're not going to reach that many consumers. We'd rather sell on volume at a very competitive price point and lower margins."

Nimble competitor

Watkins products have been well received in Whole Foods stores in Minneapolis and St. Paul and may have an opportunity to reach stores beyond the Twin Cities, said Ashley Heaton, the grocery chain's associate marketing coordinator for the Midwest region.

"They're locally made and we really try to support local producers," Heaton said. "Also, because they are a clean product, they have really high standards and, for local products, sometimes it's hard to find that. They also have a fun, unique, irreverent sense to them that we enjoy."

Watkins makes 95 percent of its products with its workforce of 250 at its headquarters in the Mississippi River city of Winona. The administration building, completed in 1912 just after the founder's death, is on the National Register of Historic Places.

Watkins is big enough, with its own lab and production facilities, to do everything from product development to package design right in Winona, Rigley said. At the same time it's small enough to move quickly to counter consumer products giants like Clorox, which now owns Burt's Bees.

The in-house production also helps the company control costs and operate more efficiently, Jacobs said, unlike many natural-products companies that outsource their manufacturing.

"We're like a mini Procter & Gamble," said Rigley, who came to Watkins in 2005 after working for P&G and McCormick. "The neat thing is we can beat them to market if we want to, and we do."

Soon after his arrival, Rigley worked with Jacobs and other managers to pare down a sprawling product lineup that had ballooned to more than 400 items. The company still makes 300-some products, but today most are in one of three core lines: natural personal care, natural home care or natural extracts and organic herbs and spices.

The expert says:

Dave Brennan, professor of marketing and co-director of the Institute for Retailing Excellence at the University of St. Thomas' Opus College of Business, said getting the widest distribution possible makes sense for Watkins, meaning mass-market retail is a better opportunity than boutiques or department stores.

"If you think about the company in terms of things that have been sold in a direct-selling mode, which is what Watkins really started out as, those products are usually modest to lower-end products," Brennan said. "They probably know those customers better. ... It's harder to go upscale from downscale."

A potential long-term problem in the mass channel is competition from bigger companies, Brennan said.

"If you're very successful, perhaps even the discounters will consider going into a private label if it becomes really big. You just have to be aware of what the competition is doing and be ready to be aggressive.''